The decision to put your business into bankruptcy is never easy. But if your business is constantly running in the red, if you regularly use your own money to make payroll or pay creditors, or if the business is putting your family’s finances at risk, then it is time to talk.
There are a variety of options for your business that include non-bankruptcy debt workouts, bankruptcy restructuring, sale through a bankruptcy, or bankruptcy liquidation. Additionally, your options will vary based on your business structure and your current debt structure. Contact David H. Fuller, to schedule a consultation for your business.
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Restructuring and Liquidation Options
Non-Bankruptcy Debt Workouts
The purpose of a debt workout is to reduce debt service payments, in order to bring the business loans back into conformity. IF the underlying business model is healthy and the bank is willing to work with you, then you can reach a non-bankruptcy solution to the business’ financial problems.
Before I contact the bank with a workout package, I will work through your bankruptcy options. It is important to go into negotiations with a clear understanding of your backup plan. It is also important to be able to articulate to a bank why a debt workout is preferable to bankruptcy. The bankruptcy options and the success of a debt workout depend entirely on the underlying strength of the business model and the bank’s motivation to avoid a bankruptcy.
The single biggest issue with a non-bankruptcy debt workout is getting the bank’s agreement. Because of the current lending climate in Seattle and nationwide, it is often difficult to find banks that are interested in doing a realistic debt workout. This does not mean that a business should not try. The credit market is constantly changing, so it is possible that this option will be available to you. However, it is important to have a clear understanding of the options in bankruptcy and what they mean for the business.
Bankruptcy Reorganization
Chapter 11 reorganization bankruptcy is the most familiar form of business bankruptcy. It allows for the restructuring of a business’ assets and liabilities. The purpose of bankruptcy reorganization is to allow the business to restructure its debts and continue to operate.
In a chapter 11, debts are classified according to bankruptcy priorities, but these priorities can be manipulated and some do not have to be paid at all. In most reorganization cases, the plan is designed to cutaway unprofitable parts of your business, while leaving a profitable core. In doing so, the assets and liabilities associated with the unprofitable parts of the business will be disposed of through the reorganization plan. This differs from a non-bankruptcy solution, because we can force a lender to accept modified loan terms.
Chapter 11 is also a more complicated solution for businesses that requires a lawyer who is familiar with chapter 11 confirmation standards and issues facing business owners in bankruptcy.
If your business is facing a financial crisis, contact the Law Office of David H. Fuller for a consultation with a business bankruptcy lawyer.
